Lagos developers lament rising costs, warn buyers and tenants will pay more

Real estate developers, investment analysts and a quantity surveyor have said that rising land prices, construction materials, labour and infrastructure costs are putting significant pressure on the cost of developing residential properties in Lagos, with developers increasingly passing the higher costs on to buyers and tenants.

The experts told Nairametrics that while high interest rates and exchange rate pressures are affecting the sector, financing costs are not the only or necessarily the biggest drivers of rising development costs.

They also pointed to land acquisition, cement, steel, finishing, site conditions, regulatory charges and infrastructure as major costs developers have to contend with.

Their comments follow Nairametrics’ examination of the rising cost of delivering residential properties in Lagos and how developers are responding to higher costs while trying to keep projects viable and within the reach of buyers and tenants.

What they are saying

The cost of developing residential property in Lagos has risen significantly in recent years, but the professionals interviewed by Nairametrics do not point to a single factor behind the increase.

Land and construction materials emerged repeatedly as major pressures, while labour, infrastructure, regulatory costs, financing and site conditions also add to the cost of delivering a project.

Real estate investment analyst Olabisi Odunsanya places land and materials at the top of the list, saying land values have more than doubled in several parts of Lagos in recent years, while material costs have moved in line with inflation since 2020.

• “The two dominant cost drivers are land acquisition and construction materials. Land can be accessed either through outright purchase or joint venture arrangements, and price trends across most parts of Lagos show land values have more than doubled in the last few years,” Olabisi said.

Bright Okereke, co-founder and president of Flinx Holding Co., also pointed to materials, particularly cement, alongside finishing works and land. He said the increase in these costs has had a direct effect on the prices at which his company sells its properties.

• “Cement, in particular, is becoming a separate crisis because its price continues to increase. It has gone from around N8,000 last year to almost N15,000 now, which is very significant,” Okereke told Nairametrics.

Magbo Henry Ikechukwu, a registered quantity surveyor, member of the Nigerian Institute of Quantity Surveyors (NIQS) and member of the Royal Institution of Chartered Surveyors (RICS), takes a broader view, saying developers need to account for the full cost of a project before deciding whether it is viable.

He said this includes pre-development expenses, infrastructure, professional and project management fees, marketing, sales commissions, taxes and the cost of funds.

• “Viability appraisal has different components. It tells you your expenditure column, what you are going to expend. It also tells you your revenue, what money is going to come in. When you compare revenue versus expenses, you see your profit and know how much profit you are making,” Ikechukwu said.

High interest rates and exchange rate are not the whole story

Olabisi said interest rates should not be treated as the main driver where developers are not heavily dependent on bank loans. She said many residential projects are financed through equity, personal capital, private investors and joint ventures.

• “Attributing rising costs to interest rates is a fairly superficial read of the problem. To make that case properly, you’d need to know what share of total project output in the country is actually funded through bank loans versus other capital sources. If that share is small, interest rates simply aren’t the primary lever people assume they are,” Olabisi told Nairametrics.

Okereke said his company also relies mainly on off-plan sales rather than bank loans because of the financing conditions attached to property development.

• “We don’t really take a lot of bank loans because bank loans are not very conducive to property development projects. The loan tenors are usually short, and banks expect you to start making repayments immediately without much of a grace period,” he said.

Engr. Habeeb Odunsanya, HOD of Fort Construction Ltd., however, said financing remains a major cost where projects are funded substantially through debt.

• “When the cost of borrowing is high, the developer has to include the financing cost in the eventual selling price,” he said.

Ikechukwu also included the cost of funds in a project’s viability assessment, noting that some banks charge interest rates of 23% and above, depending on the bank and terms negotiated.

Exchange rate pressures featured more prominently in discussions around construction inputs. Engr. Odunsanya said fluctuations in the exchange rate, alongside inflation, have contributed to increases in imported construction components, including reinforcement steel, aluminium, electrical and plumbing materials.

This leaves financing as one of several pressures developers manage alongside land, materials, labour, infrastructure and site conditions.

From land to cement, what is driving development costs

Land has become one of the biggest expenses developers face, particularly in locations where demand for residential property remains strong.

Olabisi said land values have more than doubled across several parts of Lagos in recent years, making acquisition one of the biggest pressures on developers.

Okereke said land can account for about 20% of total expected revenue on some of his company’s projects.

• “Land is also beginning to play a very significant role in development costs. Currently, land costs us around 20% of our total expected revenue in some projects because land prices have appreciated significantly due to increasing demand,” Okereke said.

Construction materials are another major cost

Okereke identified cement and iron among the materials that have recorded significant increases, while Ikechukwu singled out cement and reinforcement steel as two of the most important components of construction.

• According to Ikechukwu, cement that sold for around N5,000 to N6,000 per bag at the end of 2023 now sells for between N7,000 and N12,500, depending on the supplier and location. Reinforcement steel, which he said was previously below N1 million per tonne, can now cost between N1 million and N1.5 million per tonne.

Engr. Odunsanya said the increases extend beyond cement and steel to aluminium, electrical and plumbing materials. He also identified labour as a significant cost, particularly as skilled artisans now demand higher rates.

• For a medium-sized residential development, he estimated that construction materials and labour can account for roughly 50% to 65% of the construction budget, depending on the quality and specification.

The cost can also vary significantly between buildings of similar size.

Ikechukwu said finishing is one reason for this difference. A developer using standard tiles, fittings, wardrobes and kitchen cabinets could spend considerably less than another using imported or high-end alternatives.

• “The carcass itself is the same. That is the concrete element, the reinforcement element and the roof element. So, you could have the same size of building, same number of units, but the finishing could be a major deciding factor,” Ikechukwu said.

He estimated current construction costs at about N350,000 to N400,000 per square metre, although some projects could reach N450,000 depending on specifications and other conditions.

The land itself can also determine how much a developer spends before construction begins.

Ikechukwu said soil strength determines the type of foundation required. Developers working on weak soil may need piling or raft foundations, while firmer soil may allow for less expensive options.

• “The weaker the strength of the soil, the more it affects your cost,” the quantity surveyor explained.

Infrastructure adds another layer. Where roads, drainage, electricity, water or sewage systems are unavailable, developers may have to provide some or all of these themselves.

Development costs extend beyond land and construction

The cost of developing a residential property does not end with buying land and putting up the building. Developers also incur expenses on approvals, professional services, documentation, marketing, sales and infrastructure.

Ikechukwu said these costs should be included from the beginning when a developer carries out a viability appraisal.

He identified pre-development costs, including architectural, structural, mechanical and electrical designs and site layouts, alongside professional fees for architects, quantity surveyors, engineers and other consultants.

There are also project management costs, marketing expenses and commissions paid to agents when properties are sold.

Statutory charges add another layer. Ikechukwu said developers may have to pay fees to agencies including the Lagos State Physical Planning Permit Authority (LASPPPA), Lagos State Building Control Agency (LASBCA), material testing authorities and the Lagos State Safety Commission, depending on the project.

Okereke said approval costs have also been increasing as developers deal with more agencies and additional requirements.

• “These costs are now getting closer to 30% of the total cost of running a building project,” Okereke said.

Engr. Odunsanya said delays in documentation and approvals can have a bigger effect on project costs than the fees themselves.

A developer may have funds ready but still be unable to proceed while waiting for approvals or title processing. During that period, construction materials can become more expensive, financing costs can accumulate and potential rental or sales income is lost.

• “The bigger issue is the combination of the cost, uncertainty and time involved. Developers need more predictable timelines so they can plan their projects and financing properly,” Engr. Odunsanya said.

Okereke also highlighted delays in title registration, saying some projects can be completed and sold while titles are still being processed, preventing buyers from accessing mortgages.

• “In some cases, the project will have completely sold out while we are still processing the title,” Okereke said.

Infrastructure can also be underestimated, particularly where government infrastructure is limited. Developers may have to provide roads, drainage, power, water, sewage and security depending on the location and development.

For Engr. Odunsanya, greater government investment in infrastructure would reduce the burden on developers and could ultimately lower the cost passed on to buyers.

• “Government investment in infrastructure would reduce the burden on individual developers and make housing more affordable,” he said.

How developers are changing what they build

Rising development costs are changing how developers approach residential projects, with some adjusting unit sizes, specifications, locations and the pace of development.

Olabisi said developers are responding to limits on what buyers and tenants can afford by reducing unit sizes and looking at locations where land is cheaper.

• “When costs rise faster than what buyers and tenants can absorb, developers adjust on the things they can control — smaller units, more compact layouts, or relocating projects to cheaper land,” she said.

She added that Lagos renters have already adjusted to smaller living spaces, with some units becoming unreasonably compact.

For Okereke, rising costs have not necessarily changed the type of property his company wants to develop, but have changed how it approaches construction and pricing.

He said the company has introduced measures to manage inflation and rising development costs while adjusting selling prices.

According to him, an apartment that sold for about N5 million to N7 million when the company started its first project in 2021, and in some cases between N10 million and N30 million, can now sell for about N50 million to N60 million.

Engr. Odunsanya said developers are also looking at more efficient unit sizes and specifications to keep projects viable.

• “Developers are looking at how to provide a functional property without unnecessarily increasing the floor area because every additional square metre has a construction cost attached to it,” he said.

He said some developers are moving to locations where land is more affordable, using locally available materials where they meet required standards and developing projects in phases.

Ikechukwu said developers can also change finishing specifications without necessarily compromising quality. A developer could replace expensive imported tiles with locally available alternatives or use less expensive but suitable paints and fittings.

He also suggested alternative construction methods, selling properties in carcass form and outsourcing services such as power supply in serviced estates.

For some developers, the changes also extend to financing, with off-plan sales, partnerships and phased development helping to reduce the amount of capital required at once.

But the cost still has to be recovered somehow, leaving the question of how much ultimately reaches the buyer or tenant.

Who ultimately pays for rising development costs?

The experts largely agree that developers cannot absorb rising costs indefinitely, but differ on how much of the increase can be passed on to buyers and tenants.

Olabisi said recovering production costs is necessary for developers to remain in business, given the risks involved in real estate development.

• “The only scenario where it isn’t fully passed through is when someone is subsidizing the output — and in Nigerian real estate, nobody is,” she said.

Okereke said his company generally passes higher costs on to buyers because there is limited room to absorb significant increases.

The challenge is greater with off-plan sales, he said, where a buyer may have already paid an agreed price before construction costs increase.

• “The challenge comes when you sell off-plan, and the buyer has already paid. If the price of materials and other development costs increase during the timeline of the project, you may not be able to transfer that additional cost to the buyer because you already have a fixed agreement with them,” Okereke said.

Engr. Odunsanya, however, said the market determines how much of an increase a developer can pass on.

A 30% increase in construction costs, for instance, does not automatically mean a developer can increase the selling price by 30%. Location, competition, demand and purchasing power determine what buyers can afford.

Where the market cannot absorb the increase, developers may have to accept lower profit margins, change specifications, reduce unit sizes or negotiate cheaper materials.

Ikechukwu similarly said developers can reduce their margins, negotiate contractor costs, use alternative materials or construction methods, or share the financial burden through partnerships and joint ventures.

For rental properties, landlords face the same limitation. They can increase rents, but the increase is ultimately constrained by what tenants in a particular location can afford.

This is where Adeleke of Murals Nigeria Ltd. takes the argument beyond development costs.

He said the bigger issue is that Lagos is producing housing that does not necessarily match the earning capacity of its residents. Developers are naturally attracted to mid-market and luxury projects because they offer stronger margins, but this leaves many residents competing for a relatively small pool of affordable homes.

• “We are building homes without first creating enough people who can afford them,” Adeleke said.

He argued that housing development needs to be linked more closely to employment and economic development, so that housing supply grows alongside the number of people who can afford it.

For developers, however, the immediate calculation remains whether a project can recover its costs and generate enough return to justify the risks involved.

That puts the rising cost of housing at the intersection of development costs and purchasing power: developers have to recover what they spend, while buyers and tenants can only pay what their incomes allow.

What you should know

Lagos’ housing deficit stood at about 3.4 million units in 2025, with the state requiring an estimated 227,576 new homes annually to keep pace with population growth and replace ageing housing stock.

Lagos also requires about N6 trillion annually to bridge its housing capital gap, according to a housing and capital market report presented at a GTI Investment Group forum, highlighting the scale of funding needed to increase housing supply.

The cost of land remains a major challenge for developers, particularly in prime locations. Victoria Island recorded an average land price of N3.05 million per square metre, according to Estate Intel, illustrating the high cost of securing land for residential development in parts of Lagos.

Meanwhile, some Lagos residents spend between 60% and 70% of their income on rent, according to findings presented at the GTI Investment Group housing forum, as rising development costs continue to put pressure on property prices and rents.